http://globalresearch.ca/index.php?context=va&aid=25529The Economy Cannot Recover As Long As Inequality Continues to Skyrocket ... But Government Policy Is INCREASING Inequality by Washington's Blog
Global Research
July 6, 2011
The Economist
noted in January:
Hu Jintao, David Cameron, Warren Buffett and Dominique Strauss-Kahn ... have all worried, loudly and publicly, about the dangers of a rising gap between the rich and the rest.
***
A new survey by the World Economic Forum, whose annual gathering of bigwigs in Davos begins on January 26th, says its members see widening economic disparities as one of the two main global risks over the next decade (alongside failings in global governance).
Numerous prominent economists in government and academia have all said that large inequalities can cause - or at least contribute to - financial crises, including:
*
Robert Shiller *
Joseph Stiglitz *
John Kenneth Galbraith *
Raghuram Rajan *
Robert Reich *
Mark Thoma *
Emmanuel Saez *
Thomas Piketty *
David Moss *
Kemal Dervi *
Michael Kumhof *
Romain Rancière *
Robert Wade *
David Ruccio *
Marriner S. Eccles (Federal Reserve chairman from 1934 to 1948)
Add Alan Greenspan to the list, who
says:
Our problem basically is that we have a very distorted economy, in the sense that there has been a significant recovery in our limited area of the economy amongst high-income individuals...
Large banks, who are doing much better and large corporations, whom you point out and everyone is pointing out, are in excellent shape. The rest of the economy, small business, small banks, and a very significant amount of the labour force, which is in tragic unemployment, long-term unemployment - that is pulling the economy apart. The average of those two is what we are looking at - that they are fundamentally two separate types of economies.
And IMF economists. As Bnet
wrote in May:
New research (shows) that high income inequality may actually hurt long-term economic growth. Two economists at the International Monetary Fund, Andrew G. Berg and Jonathan D. Ostry, released a paper in April that concludes that countries with high inequality are more likely to have shorter spells of positive growth compared to countries with less inequality. That’s another way of saying that high inequality hurts the economy.
Instead of looking purely at the relationship between inequality and growth, Berg and Ostry examined the relationship between inequality and the duration of periods of positive growth. They measure a growth spell as a period of sustained growth and estimate the effect of inequality and other factors on how long growth spells last.
Their model included a variety of factors that economics have previously found to affect economic growth, such as external shocks, the initial income of the country (ie., did it start out very poor or wealthy?), the institutional make-up of the country, its openness to trade, and its macroeconomic stability.
The finding: Only income inequality stood out “as a key driver of the duration of growth spells.”
The economics concluded with the following:
“The main results in this note are that (i) increasing the length of growth spells, rather than just getting growth going, is critical to achieving income gains over the long term; and (ii) countries with more equal income distributions tend to have significantly longer growth spells. …. growth and inequality-reducing policies are likely to reinforce one another and help to establish the foundations for a sustainable expansion.”
Economics professors Saez (UC Berkeley) and Piketty (Paris School of Economics) show that the percentage of wealth held by the richest 1% of Americans
peaked [.pdf] in 1928 and 2007 -
right before each crash:
The Washington Post's Ezra Klein
wrote in June:
***
Krugman says that he used to dismiss talk that inequality contributed to crises, but then we reached Great Depression-era levels of inequality in 2007 and promptly had a crisis, so now he takes it a bit more seriously.
The problem, he says, is finding a mechanism. Krugman brings up underconsumption (wherein the working class borrows a lot of money because all the money is going to the rich) and overconsumption (in which the rich spend and that makes the next-most rich spend and so on, until everyone is spending too much to keep up with rich people whose incomes are growing much faster than everyone else's).
(The graphics above are slightly misleading, as Saez notes that inequality is actually worse now than it's been since
1917 [.pdf].)
Robert Reich has
theorized [.pdf] for some time that there are 3 causal connections between inequality and crashes:
[
Continued...]
